Closing Bell - Some Bears Won’t Buckle 12/19/23

Episode Date: December 19, 2023

Some bears won’t buckle even as sentiment continues to improve – including Cantor’s Eric Johnston. He explains why he is sticking to his case. Plus, Rich Saperstein of Treasury Partners – one of Barron’s top 100 financial advisors of 2023 – is breaking out his market playbook for the new year. And, solar stocks soared in today’s session. Pippa Stevens breaks down what is behind that bounce. 

Kelly, thanks so much. Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the bull run in stocks, a seven-week surge that's now carried the Dow to another record high, the S&P within striking distance of its own milestone. So how long can this incredible rally last? We will ask our experts over this final stretch, including a bear who doesn't seem ready to break. In the meantime, your scorecard with 60 minutes to go in regulation looks like this. Goldman, Caterpillar, Boeing, they are leading the industrials higher today. Nice gains across the board. Take a look at the Russell 2000, soaring 12% over the past month as small caps continue to roar back.

Lower interest rates, a big part of the story yet again. All of it takes us to our talk of the tape. Why some bears won't buckle even as sentiment continues to improve. The economy remains resilient. Inflation keeps falling and cash pours into stocks. Let's welcome in Cantor's Eric Johnston. He is head of equity derivatives and cross asset here at Post 9. Welcome back.

Thank you, Scott. I have to say, I'm really glad you're here because I know you know what kinds of questions I'm going to ask you, because it's been a tough year for the Bears. What looked like was going to be a pretty good year has ended up being painful, right? From the first time you were on with me back in January, high conviction, bearish, all the way through the years, except for a brief moment of tactical time, I would say. And you remain, as you said, on December the 5th, bearish equities. How do you explain yourself, Mr. Johnston? Sure. So it's been a year of multiple re-rating.

So if you look at earnings since the beginning of the year, earnings were actually unchanged versus last year. So the growth for the earnings were about zero year over year. The 10-year yield was higher on the year. Commodities were lower. But stocks re-rated. They're now trading at a 21.5 times multiple on earnings. Our view is that we thought if everyone went great. They would trade at about a 19 multiple. It's crazy as that sounds right

19. 19 multiple which would have been about forty to forty three hundred the S. and P. we were at forty one hundred seven weeks ago. As you know- we're now at much higher where twenty one a half times times earnings so we didn't expect the

multiple re rating to twenty one and a half times- we do not think this is sustainable, but we also think that you do have to be tactical from here because what we heard from the FOMC was a positive. It was a positive for the pivot. So you have a Fed that is saying we are not going to hit our inflation target until 2026, yet we're going to cut rates three times in 2024. That's very equities friendly, very equities friendly. And with that, financial conditions have loosened and net worth for consumers has risen. So those things are a helpful backdrop for equities. And so you have to be,

I think, tactical from here in the short term until that is proven different, which we think it will be. And we think at that point you could see a sustained down move. What do you think that you and other, you know, whether it's strategists, market observers who have looked at this market throughout the year got most wrong? Is it the fact that the economy remained a lot more resilient than you expected, that the amount of Fed tightening that we had, which was historic, and in the reasonably short period of time in which we had it, did not have nearly the dramatic impact as you expected it would? So I think it was the economy. So if you think about what has happened, the Fed went from 0 to 5 percent, right?

And we were at this full employment situation. And yet here we are today, you know, second quarter GDP or sorry, third quarter GDP was 4 percent. Right. This quarter is looking like it's going to be 2 percent. And the labor market, although it's slowing. Atlanta GDP just raised there. It's like 2.7. 2.7 percent. So that's not 2 percent.

That's closer to 3 than 2. Yep. That's fair 2.7. 2.7%. All right, so that's not 2%. That's closer to 3 than 2. Yep, that's fair. Let's be fair. So you have 2.7%. And so right now the economy, and for this full year, has been far more resilient. Now, it has not translated into earnings, right? Ultimately, stock prices are based on a multiple on earnings. And earnings were, the growth rate was zero year over year. And our view on that

was correct. Our view on the economy so far, it has been far more resilient than we expected. We think risks for the economy remain very high, remain very high. Why? Why? Given the pivot that you cited at the beginning. Sure. So let me, the unemployment rate is 3.7%. There have not been any bull markets that have started from a 3.7% unemployment rate. They've typically ended with a 3.7% unemployment rate, right? The unemployment rate coming out of COVID, 14%. Out of the financial crisis, 10%.. Out of the 2003, 7 percent. 1992 is 7 percent. 1982 was 10 percent. Right. Bull markets start with high unemployment rates. And then the reason why you have the bull market is because labor is added throughout that time. And you have this

great run of the unemployment rate coming down year after year after year. But you're citing periods of time where we had crises in which it forced the economy into the tank and the unemployment rate shot higher. The cycle ended and then we started a new one after that. That's right. This time's different, though, isn't it? What crisis did we have? We had inflation, which was high. Yeah. Not for traditional reasons, as the Fed chair himself cited last week, not from a mass of demand, but more so for supply chain issues. Sure. But what COVID I hear you, but what bull markets started with unemployment rate below four percent when you're at full employment, what bull markets started below

four percent? Maybe this one. I just so maybe it's maybe it's a first. Right. Maybe stocks unemployment rate below 4%. When you're at full employment, what bull market started below 4%? Maybe this one. I just, so maybe it's, maybe it's a first, right? Maybe stocks will trade at 30 times earnings, right? There could be a first for everything, of course. But if you look back in history, just like we do for every, the way that we value stocks and look at the market, you have to look at history. It's never, and also just, it's, it's, it's sort of, you know, it makes sense, right? Is that if you're at full employment, how are you going to have a growing economy for a long period of time and see that growing earnings for a long period of time?

So it's not just looking at the data from history. It's also just that makes sense. The second point I would make is you have to appreciate the multiple, right? Stocks can be overvalued for a long period of time. They were overvalued during the bubble of the tech bubble in the year 2000. They've always reverted to below 18, 17 times earnings. And we're currently at this multiple that has never been sustained. It was sustained for a while during the internet bubble, right? But ultimately, then it crashed 50%. But David Kostin, for example, over Goldman Sachs would tell you that you can maintain

perhaps 19 multiple on stocks if the economy remains as resilient as it's been and interest rates continue to come down, which they seem to be on the trajectory of doing. That's kind of what the bull case is predicated on. And that earnings are going to be good enough. Like earnings have already troughed. We already went through an earnings recession. Now you're going to tell me that earnings are going to be terrible as the economy is hanging in there and the Fed's going to be cutting rates and inflation's coming down. So earnings are at a historic high. They're unchanged with last year, which was a historic high. From 2019, if you put COVID aside and you just grow earnings 10% every year, pretend COVID didn't happen, then we would be right now at peak earnings. So they're not,

yes, they're un-shrewd every year. They are historically high earnings. As far as the multiple goes, right now the 10-year yield is 4%. The 10-year yield was between 4% and 5% from 2001 to 2008, as an example. The multiple was between 12 and 17.5% during that time period. It's not normal, based on history, to have a 19. I mean, the multiple currently is 21.5% times current year S&P. Yeah, but what's the equal weight? What's the multiple on the equal weight S&P? So the equal weight multiple is approximately 16.5%, 17 times.

You know why I'm asking that question. I know. Unfortunately, the S&P 500 that we're weight multiple is approximately 16.5, 17 times. You know why I'm asking that question. I know. Unfortunately, the S&P 500 that we're talking about is not equally weighted. Okay. And you have to look at the entire, if we're going to talk about the S&P 500 index, you have to include the entire part of it. And the entire index is growing zero and has a 21.5 times multiple. Now, I'm not here when I say you have to be tactical. I don't expect valuations are not going to be something that is going to cause a turn lower. But when that turn does happen, it makes the drop that much larger. And so when I say you have to be tactical, the next two weeks, am I bearish? No.

You have to be tactical in this window right now where the market is seeing Goldilocks, which I completely understand. But the backdrop for anyone that has a three, six, nine month perspective, I think equities are going to be a poor investment because of those not only are the multiples too high, we're at that 3.7% unemployment rate, but positioning is very full from the individual investor to the systematic institution. You think it's full with, I don't know, $6 trillion in money market funds? You think positioning is full in the equity market? Yes. So we put a note out today that I think is very, very important because we've been hearing

this narrative about that there is a lot of cash on the sidelines. We think that is a complete fallacy, and I will tell you why with numbers. So people have cash in two places. They have it in checking accounts, like deposits at banks, and they have it in money market funds. So money market fund assets have surged, but deposits at banks have come off by about a trillion dollars as people have moved out of regional banks and have moved money from zero rates to money market funds that have interest rates. You also have to look at it relative to the stock market, right? Because we're talking about people considering moving cash to stocks. Well, right now, deposits plus money market funds divided by the capitalization of equity markets is at 49%, which is close,

which is basically a 20-year low. Let me repeat that, 20-year low. The only time it was lower was one year in 2021 when rates were zero. So cash relative to the stock market right now is actually, not only is it not high, it's actually at the lows. And we put out a great chart to our clients today. Okay. Let's expand the conversation if we could, bring in Marcy McGregor of Merrill and Bank of America Private Banks, sitting here patiently listening, formulating how you want to respond. I mean, how do you, what do you say to someone like Eric, who is, it's not like the cases he makes aren't plausible. They just haven't worked out for his view of where the market would be at this particular time.

Yeah, when I think about this economy, what we're missing from the conversation is this undercurrent of fiscal spending that's happened all year. And that's caused the U.S. economy to defy gravity. Now, when I think about next year as a presidential election year, there's a reason you have to go back to 1952 for a presidential re-election year where the S&P finished in the red. And that's because the White House will throw all the policy tools they can at the economy to avoid a recession.

So that comes down to now we have a market where the Fed will be cutting, in our view, as soon as March. And in a soft landing scenario, I think it really comes down to what's the Fed's messaging. If the Fed is messaging that they're calibrating, not fighting an economy that's really falling off a cliff, I look back at history, and if you go back to the mid-1970s, one month, six months, 12 months out from Fed cuts, the first Fed cut, you have a market that's up 2%, 5%, and about 12%. So I think the market's going to like a Fed that's cutting and will have a monetary easing to go with this fiscal tailwind.

So it sounds as though this is not more complicated for you than, don't fight the Fed. Don't fight the Fed. Don't fight them when they're hiking. Certainly don't fight them when they're hiking. Certainly don't fight them when they're cutting. So I'm a believer that this Santa Claus rally continues in the next couple of weeks. But I do think when we turn the calendar page, data is going to confirm the economy is slowing. We get to that choppy time where the Fed is cutting. There's geopolitics, there's cross currents. But I think it's a choppy uptrend when I think about this broader market. So I wouldn't fight the Fed. I think this economy keeps defying gravity on us and the consumer

stays strong. And that keeps me thinking earnings will be positive in 24. What if we should change the word slowing to normalizing? What if we do that? Isn't that what it's doing? Of course, it's slowing, but maybe it's just normalizing. Yeah. I mean, if we can have an economy that's just going to grow sort of one and a half, 2% in perpetuity for the coming couple of years, then, you know, you might be able to crank out some very low returns, I think, in equities as earnings get up to the multiple. Why have you gone from, now I'm not saying that the Atlanta Fed GDP now is the gospel, because I think we've learned over the course of time somewhat consistently that it hasn't been. However, how do you go from 2.7 to 1.5? Why do you assume it's going to be as weak as that. So economic growth, jobs, number of people in the economy times, you know, productivity, productivity, maybe that continues to expand, but well, I mean, productivity has been expanding. Yes. And that's part of the bull thesis. Yes. Do you not, do you, do you want to

acknowledge that? I just acknowledge it. Uh, their productivity, somewhat skeptically, I'd say, no, I will say that, you know, those are the two factors. And the job part I addressed, which is that when you're at full employment, it's very hard to grow those jobs. From a productivity standpoint, yes, that can grow. It's just that if that's the only part of that equation that is working, then it's probably not going to lead to the excess growth for a long period of time that would be required to get earnings growth to really rally. I would just ask you, I guess, Marcy, at this point, simple question. Is it time to be bullish U.S. stocks or not?

I think we're in an overall uptrend. So we've been bullish with a slight overweight on U.S. large cap equities all year. You know, 71 percent of this market of the S&P 500 has underperformed the index. So I think this is going to be a year of a broadening out. The Magnificent Seven have led the way, but they're not pulling their weight in terms of earnings if you look at earnings relative to market cap. So and that's a risk, right? How will the market treat them if there's an earnings miss? But I think this is going to be a year of rotations, a year of a broadening out. I'm not ready to go overweight small caps just yet. But, you know, I think they're hitting some resistance

here. But we have a pulse finally. So I would continue to stay the course. I like quality. I like U.S. large cap over the rest of the world. And I would think about big picture themes when I think about how to position for the year ahead. I mean And I would think about big picture themes when I think about how to position for the year ahead. I mean, I feel like we have more than a pulse in small caps. We have like a rapid heart rate given what's happened in a really short period of time. You believe in the broadening? What's it tell you? Yeah. So I think broadening for the next two to three weeks, yes. Beyond that, no. I think that as we look out the next three to six months, that the mega cap theme of outperforming rest the other 493 and small caps is going to continue. And the reason why is that the headwinds and I think returns this year, right, for mega cap relative to rest have been an outperformer.

If you look at two-year returns, not that this is necessarily a basis for anything, but the two-year returns are basically unchanged relative to rest of market. And I think the secular trends between where mega cap is and then the headwinds for the rest, which is higher rates, tougher to get access to credit, et cetera, is going to be a headwind, continued headwind until we see an economic weakness. You like the phrase high conviction bearish equities. What gets you to come here and tell me that you're high conviction bullish? What has to happen? I'm just curious. I mean, I don't ask that. I'm not trying to be smug with you in any way.

I just want to know, because you use that phrase a lot when you've come here. What do you need to see for you to come sit right in that chair next to me and say, I've changed my view. I'm high conviction bullish. So I would tell you at this point, I mean, to be for someone to come here and say, let me rephrase that. I would not be able to come here and say high conviction bullish based on the current multiples, where we are in the cycle, where earnings are, where positioning are. It's not even close. Okay. Well, what I would need is to see the, either a recession or close to a recession where people think that it's coming,

we've got a big growth scare and the unemployment rate starts to go above 4%, a little bit of a cleansing and lower prices. And that would get me there. But, you know, until then, you know, again, tactically, different story, right? There's been periods over the last seven weeks where tactically I've been bullish. So tactically, and like I said, you know, from the Fed, what we just heard was a positive. And I think that, you know, right now, the market's seeing this as a Goldilocks scenario. and I don't think that's going to be changed or proven differently in the next week or month, to be clear. What about areas specifically that have lagged that you think could do well in the new year? Forget small caps. We'll take that out of the equation. I mean, things like energy can't get out of its own way.

Healthcare, things like that. Look at the flows into healthcare. I should say the outflows out of healthcare have been extreme. That perks me up a little bit, but big picture, one of our long-term themes is around longevity, the graying of the global population. That tells me large biopharma is an opportunity, and healthcare, if the economy is set to slow, which I agree with in 2024, usually withstands those macro headwinds. So I like health care. I like energy. And I like aerospace and defense. There's a long runway, pun intended, of catch up spending here on defense. What about bonds? What about treasuries? Do you like any part of the curve?

So I think that yields are towards the sort of floor at the moment. I don't think we're going to see them move any lower in the course of the next one to two months. You know, right now, obviously, the market's pricing in six Fed cuts for next year. Could be a little aggressive. Yeah. I mean, one of the questions, you know, I would pose is why is the rates market pricing in six cuts? Is it possible to have an economy that's doing well, asset prices to be rising, and the Fed to cut six times? If the answer is no, which would be my answer, but everyone can have their own opinion, if the answer is no, then what is the rate market saying? What is the rate market saying that maybe is different than the equity market? Well, the rate market is suggesting, I think, that the Fed's going to be able to cut,

maybe not six times, but let's just say six for argument's sake. They're going to be able to cut because they can and not because they have to. And I use the word normalizing again, because inflation is normalizing. So they don't need to keep rates as restrictive, less do damage to the economy in a way they don't need to do. Yeah. So in my scenario that I played out, if they cut two or three times, I get. But cutting six times in the economy that we're talking about of two, two and a half percent growth, stocks going up 10 percent and them cutting six times, that doesn't seem like that goes together again. Maybe that'll be, you know, another anomaly that will be out there, but that's certainly raising eyebrows from my perspective. But look at core PCE. We'll get core PCE on Friday. If we look

back at October's numbers, it's half of where it was in January, 4.8 to 2.4. We're headed back to the Fed's target. So I agree. I don't think the Fed cut six times. Our base case is four. The Fed's telling us three. That's not a huge gap between our view and the Fed. So I think inflation, to use your word, keeps normalizing. I mean, Powell basically almost front-ran PCE at the news conference, right?

They expect it to... I would expect a good read based on what news conference, right? I mean, they expect it to, I would expect a good read based on what he said, right? So I don't know how much mystery is left in all that. I've appreciated your time. I've enjoyed sparring with you throughout this year. And I wish you well, you too, Marcy, and we'll do it many times in the new year, I hope. All right. Marcy McGregor, Eric Johnson joining us here postline. Let's send it over to Christina Partsenevelos for a look at the biggest names moving in this market. Christina. Well, Chewy shares are popping after getting some love from Jeffries analysts with their buy rating report called A Tail Wagging Opportunity. They say the pet e-commerce website should benefit from increasing pet e-commerce penetration so people

are getting more comfortable shopping for their beloved pets online and, of course their high income customers who will continue to spend even in a high inflation environment. Shares are up almost nine percent. Macy's also climbing almost two percent after Morgan Stanley increased its price target to twenty one dollars although the retail analysts over there aren't convinced that the recent almost six billion dollar bid to acquire Macy's will actually follow through but they do value Macy's will actually follow through. But they do value Macy's real estate at roughly $6 to $7 billion and believe Macy's credit offering is attractive versus peers. And so that's why they have a buy rating.

Shares are up, like I said, a little bit under 2%. Scott? All right, Christina, thanks. We'll be back to you in just a bit. We're just getting started here. Up next, your 2024 playbook. One of Barron's top financial advisors is back. Treasury partners Rich Saperstein reveals where he sees opportunity ahead. That's just after the break. We're, of course, live from the New York Stock Exchange and you're watching Stocks are higher across the board today.

The S&P inching closer to its record high. Dow trading above a new record high as well. Next guest now expects this momentum to continue into Q1. Joining me here post nine, Rich Saperstein of Treasury Partners. Just ranked number four on Barron's top 100 financial advisors of 2023. Congratulations, my friend. Thank you, Scott. It's nice to have you back. We're just parading all the bears through today, I guess. You're laughing because you have been bearish. Roadkill. Bears have gotten run over. Well, I think it's more nuanced than that because, Scott, we always own equities, but the opportunity this year was a once in 15 year

opportunity in the muni bond market where we added tax-free bonds, four to five percent yields locked in for out to 10 years. And look at what that does for a portfolio. If the economy slows, which we think it will do, rates will go down and these bonds will go up in value. And you can look at what happened last month where we had a move in the bond market we hadn't seen in 40 years. So you managed $9 billion for clients. You made some of the right moves, obviously, or you wouldn't be number four on the top 100 financial advisors list of 2023. Muniz clearly worked well for you. What did you miss in the stock market and why? We are and were overweight big tech.

And so I don't look at it as missing or getting because if you look at the two-year return on the S&P, it's 3.1%. The MAG7, two-year return, 2.6%. So we're not looking at shorter periods of time. We're really looking at extended periods of time. And right now, we think stocks go higher. We're not looking to change our asset allocation. But you told me that you had, you tell me this has changed. You've maintained throughout the balance of this year, you can correct me if I'm wrong,

that you've had more cash than you've ever had. Is that true? Deployed into bonds. All deployed into bonds. Yeah, we're chock full of munis and we just caught an amazing run in interest rates in the last six weeks. You saw the 10-year went from 520 down to four. Historic move in bonds. Exactly. I mean, November is the best month, I think, since the 80s. Correct. I totally get it. What allows you to be more positive equities? Show me the earnings, Scott. Wait till earnings season? Well, we have a 245 estimate for next year. We still have sets of 11% increase. We still have the lag effects of the Fed's tightening that are still slowing the economy. So the real question is, will we see the earnings come in at 245 next year? So what will cause me to turn? I think the inflation thing is pretty much controlled right now. The Fed pivot

is a positive. That's why we think we're going to see rising stocks next year, especially in the first quarter. However, there's consensus on like soft landing, even though housing is slowing, there's tighter credit spreads, like everybody's marching in the same direction. So I think that's one concern that we should all think about. I mean, I'll give that to you that, let's just say for the last few weeks, sentiment has clearly changed to a degree where there are a lot of people on the same side of the boat. Yeah.

However, gosh, there's so many bearish people still. There's so many bearish people out there. I don't feel like we are in some raging new bull environment as it relates to sentiment necessarily. Do you? Well, with multiples right now, we're at, what, 19.3 times next year's estimate. It's fairly elevated. Although when we look at earning the P.E. ratio with 30 percent of the market in the mag seven, you're going to have a naturally higher multiple than we had historically over the last 20 years. Well, I mean,

if the economy remains resilient, we discussed it just in the last segment, if the economy remains resilient and interest rates continue to come down, earnings are going to hang in if those scenarios happen. Yeah. Theoretically, that supports higher multiples. I think that's a big F because, look, we still are chock full of stocks and now we have our munis. But the big F is if the economy slows not hard enough, in which case we can see earnings get to 245 while the Fed is in a more moderate campaign right now. So a lot of things have to still come into place.

I don't think we're out of the woods in 2024 on economic landscape. In terms of the Fed pivoting, do you feel like that is as significant as it seems to be? In other words, if I asked you... The answer is no, by the way. Well, if I asked you before they started tightening, hey, Rich, these guys are going to tighten 500 plus basis points in 17 to 18 months. You'd say that is undeniably a negative. I don't want to be anywhere near the equity market. Now I'm telling you they've pivoted and they are going to cut significantly next year. why can't you tell me at that moment then,

you know what, I want to be overweight U.S. equities relative to my muni positions and any other asset class? I'd listen to what they say, but I wouldn't follow the futures market, which has been wrong, because the futures market in January is calling for Fed rate cuts in July of this year. So the futures market is overstepping where the Fed actually goes. I don't see the Fed cutting until second half of the year. And then, as your prior guest said, you know, are they cutting because they could or because they have to is one of the questions. But aren't we kind of getting towards that answer that they're cutting because they can?

That remains to be seen. Again, unemployment's low, right, which is a positive. So they could cut as long as the inflation keeps coming down. I think we'll leave it there. Number four on the Barron's Top 100 Financial Advisors list of 2023. We'll see what 24 brings, my friend. Thank you very much, Scott. Happy holidays. Rich Saperstein joining us with Treasury partners.

Up next, debating the Fed's next move. While consensus seems to favor upcoming cuts, the former vice chair of Morgan Stanley Global Wealth, Gary Kaminsky, isn't so sure. He explains right here at Post 9 after the break. Closing bell right back. Stock staging a double-digit rally since the start of November, fueled by a sharp drop in yields and rising expectations for rate cuts. My next guest says the narrative that the Fed is done hiking, not a sure thing. Joining me now post-9 is Gary Kaminsky. He's the former vice chairman of Morgan Stanley Global Wealth Management.

Welcome back. Great to see you. You've known each other for an awfully long time. You've seen a lot of markets, okay? How do you assess what's happened in this market, especially over the last six weeks? Going to get to the market, but let me just say I'm down here today. Our friend Joe Terranova, we're going to ring the closing bell.

Almost 40 years I've known Joe. He's done a great job with ETF. I'm proud of him. And I'm down there. I just wanted to make mention of that. Okay, thank you for that. Yes. I'd be very happy that you said that.

Now my question. Well, I listened for the last 36 minutes, and everybody is certain that the pivot, the pivot party, that the Fed has telegraphed that they're going to cut rates. And I even heard a couple of guests say that inflation is under control. Last I looked, inflation at 4% compounded over five years. Individuals lose a third of their purchasing power. That does not mean inflation is under control. Directionally, inflation is under control.

But there's a very... Isn't that what matters more than anything else? No, because the Fed is not going to just sit tight at a 4% inflation rate. That's not the mandate. And that would be detrimental to consumers in this country. But why do you think it's going to stay at 4% inflation rate. That's not the mandate, and that would be detrimental to consumers in this country. But why do you think it's going to stay at 4%? It's trending towards target.

Because you and I have had this discussion off-camera for a year. Consumer spending has not been dramatically impacted by 500 basis points of interest rates. Now, a lot of that has to do with the fact that economists have not been able to figure out the traditional impact of interest rates. Now, a lot of that has to do with the fact that economists have not been able to figure out the traditional impact of interest rates on spending because of post-COVID. We just don't understand. Economists don't understand how people are spending money in

the post-COVID world. And so the traditional way of thinking about interest rates and having an impact on slowing down the economy, it just hasn't happened. Well, because there was so much money, I'll tell you, I mean, because there was so much money pumped into the system, as I've used the example of going into these historic rate hikes that we've gotten from the Fed, the mattress, which traditionally would be like this, was like this. So it's cushioned the whole economy on the way down and enabled consumers who were flushed with cash who have jobs to continue to spend. Yes, they have jobs and they have cash.

But I'm telling you that Roy Neuberger, legendary investor, I was with Neuberger Berman, as you know, many years, once made a comment to the firm. We don't have an economist at Neuberger Berman because if we have an economist, we have to pay the economist. And if we pay the economist, we may want to listen to the economist. Now, I say that because it's important to recognize that every economist got this year wrong. The economy was supposed to be in a recession. The economy continued to grow. There's a strong possibility, maybe even a probability, that we will continue to grow early next year. And if interest rates, if inflation stays at 4% and it doesn't go down, the Fed is going to have to look themselves in the mirror and make a determination. Do we have to raise one more additional time to send a market, to send a message to the

economy that this is what they're trying to do. That's the only tool they have. But it is coming down. It's coming down, but 4% inflation, as I said, over a five-year period compounded, you lose purchasing power. And that's the worst thing that can happen to the American public. Are you suggesting that the consumer is finally going to run out of gas and that the economy is going to start to slow while inflation remains elevated? The consumer has spent much more

in the last year, this year, than anybody anticipated, that anybody that came on the network as an economist would have predicted. The chairman of the Federal Reserve himself has already said they didn't expect growth to be as strong as it is today, nor did they expect inflation to be as as as far down from where it was today, either they themselves thought they'd be doing more. What did Saperstein just tell you? He said they told you a year ago they thought they might be cutting rates in the middle of 2023. So, you know, it's in motion. All I'm saying is I spent close to 40 years managing money for individuals and institutions, and my job was to protect capital. I hope I'm wrong, and I hope that rates get cut next year. I did the same thing as Rich. I moved

out my municipal bond portfolio duration five weeks ago. It's been a great trade. I didn't do it as a trade. I did it because that's what I think is the right thing to do for capital. Are you negative equities for 2024? Absolutely not. What I think is good for the equity market is the fact that the concentration and the 10 stocks that really were the power of the S&P 500, you know, provides, as some of your earlier guests said, the other 490 that traded below the S&P multiple, you know, provides, as some of your earlier guests said, the other 490 that traded below the S&P multiple adjusted because they have the opportunity given the concentration that happened.

We had concentration like that in 99. We had concentration like that, you know, post 2008. I don't think I can sit here and say I'm a bear on the market, but there's a lot of things that have happened outside of the Magnificent 7, the Super 10, whatever you want to call them, that have that will give the opportunity that if you're wrong, if I'm wrong about rates and the Fed is cutting early 2024, then of course, the stock market is going to be a good place to invest. But remember, there are other things to do outside of just buying those big cap stocks. Good. You walked right into my last question.

You said you've been managing money for people for 40 years. Close to 40 years. Okay. So, you dated yourself. I didn't. I look pretty good, though, don't I? You do. Yes, thank you, sir. What would your ideal portfolio, from an allocation standpoint, given your view, what would that look like today? Yeah, well, I think that I'm still a believer, and I know it's been really debated quite a bit this year in this sort of 60-40 portfolio.

And again, if you take somebody, you know, simplistically, if you give somebody's risk assessment, you talk about their age, if you're 50 years old, you should probably be, you know, 50% equities, 50% fixed income. I'm also a big believer in alternatives. The alternative space, given what's happened in the banking world, has provided just huge opportunities in private equity. I think, as you know, my largest personal investment is in a publicly traded private equity stock, Blue Owl. Blue Owl's up 45% this year, and the dividend is growing. You don't hear about that quite a bit, but those are the opportunities. So I think an optimal asset mix for somebody looking for long-term growth has

to include fixed income again. I've been there. I've done it for myself. I eat my own cooking, but I also think alternatives, excuse me, is necessary given the way the capital markets work today. There's just too much opportunity in that space not to just have a traditional stocks and bonds allocation. I appreciate this. Great to see you. And great congratulations to Joe. All right. You bet.

Yeah, we're excited about what's going to happen at the close. I'll see you in a little bit. That's Gary Kaminsky joining us right here post-night. Up next, solar stocks are soaring today. We're going to tell you what's sending that group higher just after the break. Closing bell right back. Well, we're less than 15 from the closing bell. Let's send it now to Pippa Stevens for a look at the big movers in the solar space today. Pippa?

Hey, Scott. Bouncing back today after bullish Wall Street commentary, residential installer Sonova is the top performer with Sunrun also higher. After Piper Sandler upgraded the stocks to overweight based on rates coming down. Sunpower also in the green today, recouping some of yesterday's 31 percent drop. You can see it there after the company restated its financials and warned of substantial doubt about its ability to continue as a going concern. Meantime, Enphase last night announcing a restructuring, including laying off about 10 percent of its staff as it looks to quote right size operations. That stock up 10 percent. Now, rising rates have hit the industry really hard.

It makes these capital intensive projects more expensive and also makes future earnings less attractive. And you can clearly see this relationship if you look at the performance since the Fed's meeting last week when they indicated that rate cuts could be coming. Scott? All right, Pippa, appreciate that. Thank you. Pippa Stevens. Up next, a firm share shooting higher. That stock is up more than 16 percent. We've got the details behind the company's latest tie up, and that has investors cheering today. Closing bells coming right back. We're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, Kate Rooney on the partnership that's sending Affirm shares soaring. And Frank Holland with the numbers to watch for when FedEx earnings hit the tape.

In OT, Mike, I'll start with you. Back to form with this end-of-day little pop. Levitation. We're really locked into those tracks that were late at the very end of 2021 that got us to those all-time highs, following even along the same trajectory for weeks at a time. Don't think that sets us up for what we got in January 2022, which was, let's remember, clear all time highs. You have to balance out a couple of things. I think one market has gotten and is staying very overbought. It's stretched. Almost anybody would say, look, there's a little bit of risk in this real short term

at an entry very aggressively at these levels. On the other hand, things are breaking out. First of all, the S&P has gone nowhere in two years. Not one of the magnificent seven stocks, except for Tesla, is trading at as high a valuation as it was at its peak in late 2021. You have things like banks and small caps that have done nothing forever and are just kind of hitting the upper end of their ranges that have been in place for a couple of years. So it's really hard to say the entire market's gone ahead of itself, even if you can look at the S&P and say, OK, it's running a touch high. I'm just looking at the Russell up 7.5% in a week. It's stunning.

Kate Rooney, Affirm, what's happening here? Hey, Scott. So the big news around Affirm today and sending shares up double digits, it's been all about this expanded Walmart partnership. So Affirm Loans will now be available for the first time at self-checkout kiosks at 4,500 stores, Walmart stores. They had been available on Walmart.com, so it does expand an existing partnership. Shares up 16% or so into the close. Likely a short squeeze also playing out in the stock.

That has been a frequent dynamic with these dramatic price swings. You see it at Affirm. It's one of the most highly shorted names out there. About 21% of available shares are sold short. The Affirm rally continues despite multiple downgrades this week, guys. Morgan Stanley, for example, calling the lender's valuation untenable earlier in the week. Elsewhere, check out shares of Robinhood. That company disclosed some positive data this week about inbound deposits. They've been offering 1% bonuses

on transfers in. There's also known as ACATs in. They say in total they've attracted about a billion dollars in new assets. So they're looking to steal some market share from the Schwab's and Fidelity's of the world, guys. Back to you. All right. Okay. Appreciate that. Kate Rooney, now to Frank Holland on what to expect from FedEx in OT. Frankie. Hey there, Scott. You know, FedEx lower right now, but trading pretty close to a two-year high. Also outperforming its rival UPS year to date.

As investors, they continue to show confidence in the company's business transformation and cost-cutting efforts. For the current quarter, margin is really key, especially for Express. FedEx gets about half of revenue from air delivery. It's forecast to be 3.6% compared to 3.2% a year ago. That may sound low, but that margin expansion, that will give further evidence that streamlining efforts are working for FedEx. Investors and analysts are also both looking for a possible raise to forward guidance after FedEx beat and raised last quarter. This is also following FedEx raising its overall shipping rates by about 6% starting in January. Bernstein out with a note

yesterday raising its price target for FedEx, praising the cost cutting and saying the stock is actually undervalued. Evercore is forecasting improvements in ground in part due to FedEx winning business from UPS during the team's negotiations. Again, those earnings right after the bell, Scott. Back over to you. All right. We'll look forward to you then. Thank you, Frank. That's Frank Collin. Mike, I turn back to you. I mean, NAS almost at 15K, Dow above 37.5. Yeah, run goes on. It does. And, you know, all the signals that we've seen in terms of the broadening out of the rally, everyone's been waiting for. You look at the percentage of stocks over whatever moving average you want, percentage of stocks making a new four-week high, eight-week high,

anything of that sort all says the same thing, which is a lot has gone up a ton in a short period of time, but the forward implications of that usually, if you go out at least a few months, are positive. In other words, it's sort of this rare momentum signal, people getting back in the game. I'm very sensitive to the idea. A lot of people are discovering that this market's up a lot.

They've sat it out. They want to participate. There's FOMO, record inflows into the SPY ETF, all that stuff. But on the other hand, it doesn't feel like it's played out yet. All right. We shall see. Thank you. That's Mike Santoli.

We'll see him again tomorrow. We've got a special one here at the New York Stock Exchange today because on the podium is our friend Joe Terranova. Because Virtus is celebrating their ETFs, including his. The Joe T, it's the three-year anniversary. So he's up there with his family. He's going to ring the closing bell. And we're going to go out with a new all-time high on the Dow Jones Industrial Average. I'll send it into overtime now with Morgan and John.

I'll see you tomorrow.